Equifax recently announced that it would not strip data breach victims of their legal rights when they signed up for its free credit monitoring offer, reversing its earlier stance.
In response to significant public pressure, Equifax’s decision is a small step toward rebuilding trust for the 143 million Americans whose personal data were exposed in the breach. But behind the public outcry, congressional Republicans and the White House are still quietly seeking to protect businesses that use these fine-print forced arbitration clauses to deny consumers their day in court.
Back in July, the Consumer Financial Protection Bureau released a final rule that would restrict the use of arbitration and require all new financial services contracts to allow victims to band together in class-action lawsuits. When the rule goes into effect next year, companies like Equifax will no longer be able to limit your legal rights in the fine print.
But some members of Congress would rather not see the rule happen at all. Shortly after it came out, the House of Representatives voted almost completely along party lines to block it. It’s now up to the Senate to choose sides: shielding companies like Equifax from accountability by blocking the CFPB’s rule, or standing up for everyday Americans by letting it move forward.
To be clear, Equifax is far from the first company to use arbitration to block lawsuits. The federal government has officially recognized arbitration since 1925, initially as a way for businesses to resolve arguments with each other without clogging up the courts.
But for the past three decades, the Supreme Court has increasingly ruled that contracts with a mandatory arbitration agreement can trump legal rights to the courts for small businesses wronged by big business, consumers harmed by company practices and workers who faced discrimination or harassment. Under consumer and worker arbitration agreements, cases are considered one by one before an arbiter picked and paid for by the company. The results are not public, and individuals do not have any right to an appeal.
Encouraged by favorable court rulings, arbitration clauses are now everywhere. Roughly half of all bank accounts and credit cards contain arbitration agreements, as do most prepaid cards, payday loans and for-profit college contracts — products typically used by more vulnerable consumers.
David Dao, the United Airlines passenger forcibly removed from an aircraft in April, was subject to arbitration. So were Gretchen Carlson of Fox News and Susan Fowler of Uber, who both complained of sexual harassment at their respective workplaces. And so were the millions of Wells Fargo customers for whom the bank opened fake accounts in their names — and then used the arbitration agreement from their real account to claim immunity from any lawsuits over the fake accounts, too.
One of the few places lacking an arbitration agreement, ironically, was Trump University. If victims of his real estate seminars had been forced to arbitrate, the deceptive practices might have never seen the light of day. Maybe that’s why the Trump administration has been so eager to allow arbitration to persist among for-profit colleges, unscrupulous financial advisers and even nursing homes.
Earlier this summer, the Centers for Medicare and Medicaid Services began undoing a rule to block federally funded nursing homes from requiring their patients to agree to arbitration. Reversing course on the nursing home rule once again shows an administration siding with the powerful rather than the vulnerable. And the White House has stated that if the resolution to kill the CFPB’s arbitration rule came to his desk, President Donald Trump would sign it.
Sens. Elizabeth Warren (D-Mass.) and Al Franken (D-Minn.), among others, have stood up for the CFPB rule. But the Seventh Amendment, the right to trial by jury, is not a partisan issue. Sen. Lindsey Graham (R-S.C.), the American Legion and Tea Party Nation’s founder Judson Phillips have all argued in favor of the CFPB rule as a matter of the rule of law and the ability of private parties to band together in court.
Class-action lawsuits are a way to ensure justice without government involvement. And they can also go hand-in-hand with public enforcement to hold companies accountable, as the state attorneys general who support the CFPB rule have noted.
The egregiousness of Equifax’s behavior and the public outcry over arbitration should make it easy for Senate Republicans to defend the victims and their constitutional rights by upholding the CFPB’s rule and the rule of law more broadly. If, instead, they defend companies’ right to defraud without being punished, their constituents will be watching.
Joe Valenti is the director of consumer finance at the Center for American Progress.
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